BofA’s Moynihan Says Lender Will Pass Next Stress Test
“The question will be what to ask for and when, because we’re not going to fail this,” Moynihan said today at a New York investor conference sponsored by Goldman Sachs Group Inc. (GS) “It’s pretty clear we’ve got the capital we need,” he said.
Moynihan, 53, is renewing efforts to win approval for raising the dividend or repurchasing shares after the Federal Reserve blocked an earlier request. He’s trimming staff and operations to reduce costs at the Charlotte, North Carolina- based company and has sold more than $60 billion in assets since he took over in 2010 to streamline the firm and build capital.
The CEO’s comments came after a question about whether the bank would resubmit a capital plan if its initial version didn’t pass muster. Moynihan said there was “no upside” to having to resubmit and “you don’t even want to have that publicly disclosed.”
While the timing of an increased payout isn’t certain, “let’s not get wound up about a quarter,” he said. “All the excess capital is yours. It is sitting on the balance sheet for you, as a shareholder.”
The Fed periodically subjects banks to stress tests designed to show whether they can handle a set of theoretical economic setbacks and shocks. The results can determine whether a firm is allowed to increase payouts to investors.
Global lenders are under pressure to build their reserves for losses and avoid a repeat of the 2008 credit crisis that almost destroyed the financial system. Using the new Basel III international standards, Bank of America said in October that it had an estimated common equity ratio of 8.97 percent, above the 8.5 percent it would need under the latest regulatory guidance.
That’s a percentage point less than rivals including JPMorgan Chase & Co., the biggest U.S. bank by assets, and Citigroup Inc., ranked third. Bank of America is second-largest.
Bank of America reduced staff in the unit dealing with troubled loans for the first time in 14 quarters and is cutting again in the current period, Moynihan said.
Lower mortgage costs are helping to curb expenses and the bank will settle loan-repurchase disputes with parties who are reasonable, he said. Fannie Mae, Freddie Mac and other buyers of mortgages have demanded refunds, claiming home loans were based upon flawed data about the properties and borrowers. The claims, along with costs tied to faulty foreclosures, have cost the bank more than $40 billion.
“Assume there’s no one more interested in putting this chapter of the company behind them than me,” Moynihan said of the putback claims. “These are difficult negotiations; hopefully we can get them done.”
Moynihan defended his firm’s business model of catering to retail customers, corporations and institutional investors, saying that the “universal banking model is the model that wins.”
Bank of America gained 76 percent this year through yesterday in New York trading, the best showing in the Dow Jones Industrial Average. The stock was little changed at $9.81 as of 2:12 p.m.
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